What Goes Into an Appraisal?

A home purchase is the most serious investment most of us could ever encounter. It doesn't matter if where you raise your family, a second vacation property or a rental fixer upper, purchasing real property is a detailed transaction that requires multiple people working in concert to make it all happen.

Most people are familiar with the parties taking part in the transaction. The most known entity in the exchange is the real estate agent. Next, the lender provides the money required to bankroll the exchange. The title company makes sure that all areas of the sale are completed and that a clear title passes from the seller to the purchaser.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, what party makes sure the value of the real estate is consistent with the purchase price? This is where the appraiser comes in. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Tom Almon will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To determine the true status of the property, it's our responsibility to first complete a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the property.

Following the inspection, we use two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, we use information on local construction costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This estimate commonly sets the maximum on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers can tell you a lot about the communities in which they appraise. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the subject being appraised. By assigning a dollar value to certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • For example, if the comparable property has an extra half bath that the subject does not, the appraiser may subtract the value of that half bath from the sales price of the comparable home.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to putting a value on features of homes in Aurora and Arapahoe, Tom Almon is second to none. The sales comparison approach to value is most often given the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional approach to value. In this case, the amount of revenue the real estate produces is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.

Coming Up With The Final Value

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While this amount is probably the most accurate indication of what a house is worth, it probably will not be the price at which the property closes. Depending on the specific situations of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.Regardless, the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is, an appraiser from Tom Almon will guarantee you discover the most fair and balanced property value, so you can make profitable real estate decisions.